By Michael Haddon
Europe's horse meat scandal will likely result in higher costs
for the continent's smaller food producers and manufacturers, Fitch
Ratings said Friday, adding to pressure on the sector's margins and
profits.
Fitch said the discovery of horse meat in a variety of beef
products will probably lead to tighter health and safety standards
and new requirements for labeling and tracing ingredients across
the value chain, which will push up costs.
The rating company added that product recalls and lost sales
will also hurt the industry's revenue in the near-term, though the
long-term impact on sales is less clear.
"There is a problem of reputation and trust in certain meat
product categories and a few brands associated with this scandal
which can take some time to rebuild," Fitch said.
Some manufacturing companies may be already operating on
relatively slim margins, Fitch said, partly due to pressure from
major retailers to keep prices down.
These manufacturers then put pressure on their suppliers, which
helped create the complex supply chains and lack of traceability
which is at the heart of the current scandal, it added.
Smaller, less-diversified manufacturers or single-brand
manufacturers of frozen food and ready-meals--such as Findus--may
be harder hit than larger multiple-brand manufacturers, it
said.
The impact on bigger manufacturers such as Nestle SA (NESN.VX)
will be much less because meat-products make up only a fraction of
their brands, Fitch said.
The Swiss food giant said Tuesday it was withdrawing its beef
pasta meals from sale in Italy, Spain and France after finding
traces of horse DNA in them.
Meanwhile, major retailers like Tesco PLC (TSCO.LN) are unlikely
to feel any significant impact, it added, although the crisis is
likely to be long-running, given the complexity of the supply
chain.
Wm. Morrison Supermarkets PLC (MRW.LN) has been left unscathed
by the horse meat scandal, Fitch said, as the U.K. supermarket is
vertically integrated, owning its factories and manufacturing
facilities.
Therefore, the strength of the country's major retailers' market
share may be tested, it added.
Consumer research and media reports indicate that sales of some
frozen meat products have dropped and that consumers say they are
less likely to buy these products in the future, Fitch said.
However, the ratings firm said its unclear how long this might
last, especially as the scandal revolves around the
misrepresentation of horse meat, rather than a major health scare
such as bovine spongiform encephalopathy, or "mad cow disease."
Write to Michael Haddon at michael.haddon@dowjones.com or on
Twitter @MichaelHaddonDJ
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